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Merchants Bancorp

Merchants Bancorp Reports Third Quarter 2024 Results

  • Third quarter 2024 net income of $61.3 million, decreased 25% compared to third quarter of 2023 and decreased 20% compared to the second quarter 2024, reflecting unfavorable fair market value adjustments to derivatives and servicing rights, and an increase in specific reserves on loans as part of the allowance for credit losses.
  • Third quarter 2024 diluted earnings per common share of $1.17 decreased 30% compared to the third quarter of 2023 and decreased 21% compared to the second quarter of 2024.
  • Unfavorable fair market value adjustments to interest rate floor derivatives on loans and servicing rights of $7.7 million and $6.7 million, respectively, negatively impacted results during the third quarter of 2024 by approximately $0.24 per diluted common share.
  • Total assets of $18.7 billion surpassed any level previously reported by the Company, increasing 2% compared to June 30, 2024, and increasing 10% compared to December 31, 2023.
  • Tangible book value per common share reached a record-high of $32.38 and increased 25% compared to $25.82 in the third quarter of 2023 and increased 4% compared to $31.27 in the second quarter of 2024.
  • As of September 30, 2024, the Company had $5.1 billion in unused borrowing capacity with the Federal Home Loan Bank and the Federal Reserve Discount window, representing 27% of total assets.
  • The Company's most liquid assets are in unrestricted cash, short-term investments, including interest-earning demand deposits, mortgage loans in process of securitization, loans held for sale, and warehouse repurchase agreements included in loans receivable. Taken together, with unused borrowing capacity, these totaled $11.1 billion, or 59%, of the $18.7 billion in total assets as of September 30, 2024.
  • Loans receivable of $10.3 billion, net of allowance for credit losses on loans, decreased $671.3 million, or 6%, compared to June 30, 2024, and increased $134.1 million, or 1%, compared to December 31, 2023.
  • In September 2024 the Company sold $629 million of healthcare bridge loans into a private securitization via a real estate mortgage investment conduit (REMIC). As part of the transaction, the Company purchased a $535 million senior investment security that is classified as held to maturity and carries an 80% lower capital requirement than bridge loans.

CARMEL, Ind. , Oct. 28, 2024 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank, today reported third quarter 2024 net income of $61.3 million, or diluted earnings per common share of $1.17. This compared to $81.5 million, or diluted earnings per common share of $1.68 in the third quarter of 2023, and compared to $76.4 million, or diluted earnings per common share of $1.49 in the second quarter of 2024.

"Despite a few isolated credit issues and unfavorable fair market value adjustments related to derivatives and servicing rights, our quarterly results underscore the robust, underlying strength of our core businesses. We surpassed several previous records, reaching $18.7 billion in assets and increasing our tangible book value to $32.38, a 25% rise from the prior year.   The declining interest rate environment also positions us well to capitalize on promising growth opportunities across various aspects of our operations," said Michael F. Petrie, Chairman and CEO of Merchants.

Michael J. Dunlap, President and Chief Operating Officer of Merchants, added, "We remain at the forefront of effective capital management, successfully executing another credit risk transfer transaction this quarter through the securitization of $629 million in healthcare loans. This strategy not only protects us from potential credit losses, but also enables us to efficiently deploy capital for our future growth initiatives."

Net income of $61.3 million for the third quarter 2024 decreased by $20.2 million, or 25%, compared to the third quarter of 2023, primarily driven by:

  • a $15.4 million, or 13%, increase in net interest income,
  • a $6.0 million, or 56%, increase in gain on sale of loans,
  • a $5.0 million, or 20%, decrease in provision for income taxes,
  • an $18.9 million, or 109%, decrease in loan servicing fees, primarily due to negative fair market value adjustments to servicing rights,
  • an $18.4 million, or 43%, increase in noninterest expense, primarily driven by salaries and employee benefits that reflected higher commissions on higher production volume, increases in deposit insurance expenses, and ongoing premium expense associated with the credit default swap,
  • a $5.6 million decrease in other income, reflecting negative fair market value adjustments to derivatives, and
  • a $2.9 million, or 72%, increase in the provision for credit losses primarily related to increased specific reserves.

Net income of $61.3 million for the third quarter 2024 decreased by $15.1 million, or 20%, compared to the second quarter of 2024, primarily driven by:

  • a $5.6 million, or 50%, increase in gain on sale of loans,
  • a $4.7 million, or 4%, increase in net interest income,
  • a $3.1 million, or 31%, decrease in the provision for credit losses,
  • a $2.7 million, or 12%, decrease in provision for income taxes,
  • a $12.3 million, or 114%, decrease in loan servicing fees, primarily due to negative fair market value adjustments to servicing rights,
  • a $10.9 million, or 22%, increase in noninterest expense, primarily driven by salaries and employee benefits that reflected higher commissions on higher production volume and increases in deposit insurance expenses, and
  • a $6.5 million decrease in other income, reflecting negative fair market value adjustments to derivatives.

Total Assets
Total assets of $18.7 billion at September 30, 2024 increased $440.6 million, or 2%, compared to June 30, 2024, and increased $1.7 billion, or 10%, compared to December 31, 2023.  The increase compared to December 31, 2023 was primarily due to growth in loans held for sale and in the warehouse, and multi-family loan portfolios. There was also an increase in securities held to maturity compared to December 31, 2023, primarily due to the purchase of a security representing healthcare loans sold into a securitization in the third quarter of 2024 that was offset by a decline in loans in the healthcare portfolio that were sold into the securitization.

Return on average assets was 1.34% for the third quarter of 2024 compared to 2.03% for the third quarter of 2023 and 1.72% for the second quarter of 2024.

Asset Quality
The allowance for credit losses on loans of $84.5 million, as of September 30, 2024, increased $3.5 million, or 4%, compared to June 30, 2024, and increased $12.8 million, or 18%, compared to December 31, 2023.  The increase compared to June 30, 2024 was primarily due to an $8.0 million increase in specific reserves, primarily related to two customers, that was partially offset by lower loan balances due to the securitization of healthcare loans, which reduced the allowance by approximately $4.4 million.

The $84.5 million allowance for credit losses on loans as of September 30, 2024, compared to the net charge-offs of $6.7 million over the last twelve months ended September 30, 2024, could absorb 13 years of losses if recent loss levels continued into the future.

The Company recorded charge-offs for three customers, primarily in the multi-family loan portfolio, for $2.1 million, and recorded $7,000 of recoveries during the third quarter 2024. This compares to $21,000 in charge-offs and $31,000 in recoveries during the third quarter of 2023 and to $3.5 million in charge-offs and $15,000 of recoveries in the second quarter of 2024.

As of September 30, 2024, non-performing loans were $210.9 million, or 2.04% of gross loans receivable, compared to $143.5 million, or 1.30%, as of June 30, 2024, and $82.0 million, or 0.80%, as of December 31, 2023.  The increase in non-performing loans compared to both periods was primarily driven by multi-family and healthcare customers with delinquent payments on variable rate loans that have required higher payments largely due to elevated interest rates. The increase was also attributable to the financial deterioration of a few sponsors.  Credit quality is expected to improve with recent reductions in interest rates.  After six months of consecutive loan performance, the loans are placed back on accrual status.

All substandard loans as of September 30, 2024 have been evaluated for impairment and these loans have specific reserves of $19.2 million, including $8.0 million added during the third quarter of 2024. Although there has been an increase in adversely classified loans, asset values remain strong overall and loans are well-collateralized.

In addition to elevated reserves for credit losses on loans, the Company has been making additional efforts to minimize its credit risk through loan sale and securitization activities since 2019.  In April 2023 and March 2024, the Company strategically entered into credit protection arrangements through a credit linked note and credit default swap, respectively, for $1.7 billion in loans to reduce our risk of losses with incremental coverage of approximately 14% on those covered loans. The balance of loans in those covered portfolios as of September 30, 2024 was $1.3 billion.

Securities Available for Sale
Total securities available for sale of $953.1 million as of September 30, 2024 decreased $64.0 million, or 6%, compared to June 30, 2024, and decreased $160.6 million, or 14%, compared to December 31, 2023.  The decreases were primarily due to maturities, sales, and repayments, as well as fair value adjustments that were partially offset by purchases. As of September 30, 2024, Accumulated Other Comprehensive Income ("AOCI") of $0.1 million, related to securities available for sale, increased $0.6 million, or 119%, compared to June 30, 2024, and increased $2.6 million, or 104%, compared to December 31, 2023.

Securities Held to Maturity
Total securities held to maturity of $1.8 billion as of September 30, 2024 increased $463.9 million, or 36%, compared to June 30, 2024, and increased $550.8 million, or 46%, compared to December 31, 2023. The increases were primarily due to purchases of senior investment securities backed by residential and healthcare loans purchased as part of credit risk transfer securitization transactions originated by the Company.

Total Deposits
Total deposits of $12.9 billion at September 30, 2024 decreased $2.0 billion, or 14%, compared to June 30, 2024, and decreased $1.2 billion, or 8%, compared to December 31, 2023. The change compared to both periods was driven by decreases in certificates of deposit accounts. The changes reflected decreases in brokered deposits that were partially offset by growth in core deposits.

Core deposits of $10.1 billion at September 30, 2024 increased $1.3 billion, or 15%, from June 30, 2024 and increased $2.0 billion, or 25%, from December 31, 2023. Core deposits represented 78% of total deposits at September 30, 2024, 59% of total deposits at June 30, 2024, and 58% of total deposits at December 31, 2023.

Total brokered deposits of $2.8 billion at September 30, 2024 decreased $3.3 billion, or 54%, from June 30, 2024 and decreased $3.2 billion, or 53%, from December 31, 2023.   As of September 30, 2024, brokered certificates of deposit had a weighted average remaining duration of 56 days.

Liquidity
Cash balances of $601.9 million as of September 30, 2024 increased by $61.0 million compared to June 30, 2024 and increased by $17.5 million compared to December 31, 2023.  The Company continues to have significant borrowing capacity, with unused lines of credit totaling $5.1 billion as of September 30, 2024 compared to $7.0 billion at June 30, 2024 and $6.0 billion at December 31, 2023.  Furthermore, its $3.2 billion line of credit with the Federal Reserve Bank of Chicago alone could fund 120% of its uninsured deposits, which represented approximately 20% of total deposits as of September 30, 2024.

This liquidity enhances the ability to effectively manage interest expense and asset levels in the future. Additionally, the Company's business model is designed to continuously sell or securitize a significant portion of its loans, which provides flexibility in managing its liquidity. 

Comparison of Operating Results for the Three Months Ended
 September 30, 2024 and 2023

Net Interest Income of $132.8 million increased $15.4 million, or 13%, compared to $117.4 million, primarily reflecting an increase in average balances on loans and loans held for sale, which were partially offset by higher average balances on borrowings.

  • Net interest margin of 2.99% remained unchanged. The margin was negatively impacted by 6 basis points in the third quarter of 2024 from the net reversal of $2.9 million in accrued interest income associated with the movement of loans into nonaccrual status.
  • Interest rate spread of 2.43% decreased 1 basis point compared to 2.44%.

Interest Income of $338.9 million increased $42.3 million, or 14%, primarily reflecting an increase in average balances of loans and loans held for sale, as well as increased average yields and balances on securities available for sale.

  • Average balances of $14.6 billion for loans and loans held for sale increased 9% compared to $13.4 billion.
  • Average yields on securities available for sale of 5.84% increased 210 basis points compared to 3.74%.
  • Average balances of $1.0 billion for securities available for sale increased $354.6 million, or 54%, compared to $656.6 million.

Interest Expense of $206.1 million increased $26.9 million, or 15%, compared to $179.2 million.  The increase reflected higher average balances on borrowings and interest-bearing checking accounts, partially offset by lower average rates on borrowings and lower average balances on certificates of deposit.

  • Average balances of $2.5 billion for borrowings increased $1.8 billion, or 254%, compared to $711.9 million.
  • Average balances of $5.3 billion for interest-bearing checking increased 9% compared to $4.9 billion.
  • Average interest rates of 6.39% for borrowings decreased 271 basis points compared to 9.10%.
  • Average interest rates of 5.47% for certificates of deposit increased 13 basis points compared to 5.34%.

Noninterest Income of $16.7 million decreased $19.3 million, or 54%, compared to $36.1 million, primarily due to a $18.9 million, or 109%, decrease in net loan servicing fees and a $5.6 million, or 152%, decrease in other income, partially offset by a $6.0 million, or 56%, increase in gain on sale of loans.    

  • Loan servicing fees included a $6.7 million negative fair market value adjustment to servicing rights, with a $1.6 million negative adjustment in the Banking segment and a $5.1 million negative adjustment in the Multi-family Mortgage Banking segment. This compared to a $11.6 million positive fair market value adjustment to servicing rights in the prior period with a $1.2 million positive adjustment in the Banking segment and a $10.4 million positive adjustment in the Multi-family Mortgage Banking segment. The value of servicing rights generally increases in rising interest rate environments and declines in falling interest rate environments due to expected prepayments and earning rates on escrow deposits.
  • Other income included a $7.7 million negative fair market value adjustment to derivatives that didn't occur in the prior comparative period.
  • Gain on sale of loans increased $6.0 million, reflecting higher volume in the multi-family loan portfolio.

Noninterest Expense of $61.3 million increased $18.4 million, or 43%, compared to $42.9 million, primarily due to increases in salaries and employee benefits that reflected higher commissions on higher production volume, as well as a $5.4 million, or 152%, increase in deposit insurance expenses. The higher noninterest expense also reflected a $3.4 million increase in other expenses primarily associated with ongoing premium expense for the credit default swap that was executed in March 2024.

  • The efficiency ratio of 41.00% increased 1,303 basis points compared to 27.97%.

Comparison of Operating Results for the Three Months Ended
 September 30, 2024 and June 30, 2024

Net Interest Income of $132.8 million increased $4.7 million, or 4%, compared to $128.1 million, primarily due to higher average balances on borrowings at lower average interest rates that were partially offset by lower average balances on certificates of deposit at higher average interest rates. Higher average balances on loans and loans held for sale also contributed to the higher net interest income.

  • Net interest margin of 2.99% remain unchanged. The margin was negatively impacted by 6 basis points in the third quarter of 2024 from the net reversal of $2.9 million in accrued interest income associated with the movement of loans into nonaccrual status. This compared to 6 basis points, or $2.5 million in accrued interest income in the second quarter of 2024.
  • Interest rate spread of 2.43% decreased 2 basis points compared to 2.45%.

Interest Income of $338.9 million increased $10.7 million, or 3%, reflecting an increase in average balances on loans and loans held for sale and securities held to maturity, as well as increased average yields in interest earning deposits and other interest or dividends.

  • Average balances of $14.6 billion for loans and loans held for sale increased 2% compared to $14.3 billion.
  • Average balances of $1.3 billion for securities held to maturity increased 11% compared to $1.2 billion.
  • Average yields on interest earning deposits and other interest or dividends of 6.30% increased 59 basis points compared to 5.71%.

Interest Expense of $206.1 million increased 3% compared to $200.2 million. The increase was primarily driven by higher average balances on borrowings at lower average rates, as well as higher average balances of interest-bearing checking accounts. These were partially offset by lower average balances on certificates of deposits.  

  • Average balances of $2.5 billion for borrowings increased $1.5 billion, or 144%, compared to $1.0 billion.
  • Average interest rates of 6.39% for borrowings decreased 161 basis points compared to 8.00%.
  • Average balances of $5.3 billion for interest-bearing checking accounts increased $363.8 million, or 7%, compared to $4.9 billion.
  • Average balances of $5.0 billion for certificate of deposit accounts decreased $1.5 billion, or 23%, compared to $6.5 billion.

Noninterest Income of $16.7 million decreased 47%, compared $31.4 million, primarily due to a $12.3 million, or 114%, decrease in net loan servicing fees, a $6.5 million, or 142%, decrease in other income that was partially offset by an increase of $5.6 million in gain on sale of loans.

  • Loan servicing fees included a $6.7 million negative fair market value adjustment to servicing rights, with a $1.6 million negative adjustment in the Banking segment and a $5.1 million negative adjustment in the Multi-family Mortgage Banking segment. This compared to a $5.1 million positive fair market value adjustment to servicing rights in the prior period, with a $0.6 million positive adjustment in the Banking segment and a $4.5 million positive adjustment in the Multi-family Mortgage Banking segment. The value of servicing rights generally increases in rising interest rate environments and declines in falling interest rate environments due to expected prepayments and earning rates on escrow deposits.
  • Other income included a $7.7 million negative fair market value adjustment to derivatives compared to a $0.2 million positive fair market value adjustment to derivatives in the second quarter of 2024.
  • Gain on sale of loans increased $5.6 million reflecting higher volume in the multi-family loan portfolio.

Noninterest Expense of $61.3 million increased $10.9 million, or 22%, compared to $50.4 million, primarily driven by a $6.8 million, or 24%, increase in salaries and employee benefits reflecting higher commissions on higher production volume, and a $3.4 million increase in deposit insurance expenses.

  • The efficiency ratio of 41.00% increased 941 basis points compared to 31.59%.

About Merchants Bancorp
 Ranked as a top performing U.S. public bank by S&P Global Market Intelligence, Merchants Bancorp is a diversified bank holding company headquartered in Carmel, Indiana operating multiple segments, including Multi-family Mortgage Banking that primarily offers multi-family housing and healthcare facility financing and servicing (through this segment it also serves as a syndicator of low-income housing tax credit and debt funds); Mortgage Warehousing that offers mortgage warehouse financing, commercial loans, and deposit services; and Banking that offers retail and correspondent residential mortgage banking, agricultural lending, and traditional community banking.  Merchants Bancorp, with $18.7 billion in assets and $12.9 billion in deposits as of September 30, 2024, conducts its business primarily through its direct and indirect subsidiaries, Merchants Bank of Indiana, Merchants Capital Corp., Merchants Capital Investments, LLC, Merchants Capital Servicing, LLC, Merchants Asset Management, LLC, and Merchants Mortgage, a division of Merchants Bank of Indiana. For more information and financial data, please visit Merchants' Investor Relations page at investors.merchantsbancorp.com.

Forward-Looking Statements
This press release contains forward-looking statements which reflect management's current views with respect to, among other things, future events and financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, management cautions that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.  A number of important factors could cause actual results to differ materially from those indicated in these forward-looking statements, including the impacts of factors identified in "Risk Factors" or "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission.  Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

 

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)














September 30,


June 30,


March 31,


December 31,


September 30,



2024


2024


2024


2023


2023

Assets











Cash and due from banks


$              12,214


$              10,242


$              17,924


$              15,592


$              10,633

Interest-earning demand accounts


589,692


530,640


490,831


568,830


396,605

Cash and cash equivalents


601,906


540,882


508,755


584,422


407,238

Securities purchased under agreements to resell


3,279


3,304


3,329


3,349


3,385

Mortgage loans in process of securitization


430,966


209,244


142,629


110,599


476,047

Securities available for sale ($682,975, $682,774, $700,640 and $722,497 utilizing fair value option at September 30, 2024, June 30, 2024, March 31, 2024 and December 31, 2023)


953,063


1,017,019


1,061,288


1,113,687


624,586

Securities held to maturity ($1,756,203, $1,291,960, $1,176,178, $1,203,535 and $1,010,745 at fair value, respectively)


1,755,047


1,291,110


1,175,167


1,204,217


1,012,801

Federal Home Loan Bank (FHLB) stock and other equity securities


184,050


67,499


64,215


48,578


48,219

Loans held for sale (includes $91,084, $102,873, $84,513, $86,663 and $90,875 at fair value, respectively)


3,808,234


3,483,076


3,503,131


3,144,756


3,477,036

Loans receivable, net of allowance for credit losses on loans of $84,549, $81,028, $75,712, $71,752 and $66,864, respectively


10,261,890


10,933,189


10,690,513


10,127,801


9,910,681

Premises and equipment, net


53,161


46,833


42,450


42,342


36,730

Servicing rights


177,327


178,776


172,200


158,457


162,141

Interest receivable


86,612


90,360


90,303


91,346


78,401

Goodwill 


8,014


8,014


8,014


15,845


15,845

Other assets and receivables


329,427


343,116


360,582


307,117


242,126

Total assets


$       18,652,976


$       18,212,422


$       17,822,576


$       16,952,516


$       16,495,236

Liabilities and Shareholders' Equity











  Liabilities











Deposits











Noninterest-bearing


$            311,386


$            383,260


$            319,872


$            520,070


$            287,846

Interest-bearing


12,580,501


14,533,807


13,655,789


13,541,390


12,719,492

Total deposits


12,891,887


14,917,067


13,975,661


14,061,460


13,007,338

Borrowings 


3,568,721


1,159,206


1,835,985


964,127


1,654,075

Deferred and current tax liabilities, net


19,530


25,098


43,935


19,923


18,006

Other liabilities


233,731


222,904


190,527


205,922


183,102

Total liabilities


16,713,869


16,324,275


16,046,108


15,251,432


14,862,521

Commitments and  Contingencies











Shareholders' Equity











Common stock, without par value











Authorized - 75,000,000 shares











Issued and outstanding  - 45,764,023 shares, 45,757,567 shares, 43,354,718 shares, 43,242,928 shares and 43,240,212 shares


239,448


238,492


139,950


140,365


139,609

Preferred stock, without par value - 5,000,000 total shares authorized











7% Series A Preferred stock - $25 per share liquidation preference











Authorized - no shares at September 30, 2024 or June 30, 2024 and 3,500,000 shares at March 31, 2024 and all prior periods presented











Issued and outstanding - no shares at September 30, 2024 or June 30, 2024 and 2,081,800 shares at March 31, 2024 and all prior periods presented


—


—


50,221


50,221


50,221

6% Series B Preferred stock - $1,000 per share liquidation preference











Authorized - 125,000 shares











Issued and outstanding - 125,000 shares (equivalent to 5,000,000 depositary shares)


120,844


120,844


120,844


120,844


120,844

6% Series C Preferred stock - $1,000 per share liquidation preference











Authorized - 200,000 shares











Issued and outstanding - 196,181 shares (equivalent to 7,847,233 depositary shares) 


191,084


191,084


191,084


191,084


191,084

8.25% Series D Preferred stock - $1,000 per share liquidation preference











Authorized - 300,000 shares











Issued and outstanding - 142,500 shares (equivalent to 5,700,000 depositary shares) 


137,459


137,459


137,459


137,459


137,459

Retained earnings


1,250,176


1,200,778


1,138,083


1,063,599


998,252

Accumulated other comprehensive income (loss)


96


(510)


(1,173)


(2,488)


(4,754)

Total shareholders' equity


1,939,107


1,888,147


1,776,468


1,701,084


1,632,715

Total liabilities and shareholders' equity


$       18,652,976


$       18,212,422


$       17,822,576


$       16,952,516


$       16,495,236

 

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)

















Three Months Ended


Change



September 30, 


June 30, 


September 30,


3Q24


3Q24



2024


2024


2023


vs. 2Q24


vs. 3Q23

Interest Income














Loans


$

290,259


$

284,421


$

266,561


2 %


9 %

Mortgage loans in process of securitization



4,062



3,044



2,583


33 %


57 %

Investment securities:














Available for sale



14,855



14,784



6,182


—


140 %

Held to maturity



22,081



19,799



17,427


12 %


27 %

FHLB stock and other equity securities (dividends)



3,128



1,277



572


145 %


447 %

Other



4,543



4,948



3,351


-8 %


36 %

Total interest income



338,928



328,273



296,676


3 %


14 %

Interest Expense














Deposits



165,675



179,651



162,906


-8 %


2 %

Borrowed funds



40,432



20,503



16,334


97 %


148 %

Total interest expense



206,107



200,154



179,240


3 %


15 %

Net Interest Income



132,821



128,119



117,436


4 %


13 %

Provision for credit losses



6,898



9,965



4,014


-31 %


72 %

Net Interest Income After Provision for Credit Losses



125,923



118,154



113,422


7 %


11 %

Noninterest Income














Gain on sale of loans



16,731



11,168



10,758


50 %


56 %

Loan servicing fees, net



(1,509)



10,827



17,384


-114 %


-109 %

Mortgage warehouse fees



1,620



1,524



1,858


6 %


-13 %

Syndication and asset management fees



1,834



3,233



2,368


-43 %


-23 %

Other income



(1,934)



4,599



3,700


-142 %


-152 %

Total noninterest income



16,742



31,351



36,068


-47 %


-54 %

Noninterest Expense














Salaries and employee benefits



35,218



28,373



27,052


24 %


30 %

Loan expense



1,114



993



1,038


12 %


7 %

Occupancy and equipment



2,231



2,239



2,196


—


2 %

Professional fees



3,439



3,556



2,555


-3 %


35 %

Deposit insurance expense



8,981



5,579



3,568


61 %


152 %

Technology expense



2,068



1,859



1,609


11 %


29 %

Other expense



8,267



7,781



4,912


6 %


68 %

Total noninterest expense



61,318



50,380



42,930


22 %


43 %

Income Before Income Taxes



81,347



99,125



106,560


-18 %


-24 %

Provision for income taxes



20,074



22,732



25,056


-12 %


-20 %

Net Income


$

61,273


$

76,393


$

81,504


-20 %


-25 %

   Dividends on preferred stock



(7,757)



(7,757)



(8,668)


—


-11 %

   Impact of preferred stock redemption



—



(1,823)



—


100 %


—

Net Income Available to Common Shareholders


$

53,516


$

66,813


$

72,836


-20 %


-27 %

Basic Earnings Per Share


$

1.17


$

1.50


$

1.68


-22 %


-30 %

Diluted Earnings Per Share


$

1.17


$

1.49


$

1.68


-21 %


-30 %

Weighted-Average Shares Outstanding














Basic



45,759,667



44,569,345



43,238,724





Diluted



45,910,052



44,698,324



43,351,208





 

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)












Nine Months Ended





September 30,


September 30,





2024


2023


Change

Interest Income









Loans


$

846,678


$

684,743


24 %

Mortgage loans in process of securitization



8,826



7,358


20 %

Investment securities:









Available for sale



44,027



14,012


214 %

Held to maturity



62,402



50,492


24 %

FHLB stock and other equity securities (dividends)



5,249



1,470


257 %

Other



14,192



7,964


78 %

Total interest income



981,374



766,039


28 %

Interest Expense









Deposits



516,348



405,149


27 %

Borrowed funds



77,030



37,144


107 %

Total interest expense



593,378



442,293


34 %

Net Interest Income



387,996



323,746


20 %

Provision for credit losses



21,589



33,484


-36 %

Net Interest Income After Provision for Credit Losses



366,407



290,262


26 %

Noninterest Income









Gain on sale of loans



37,255



28,841


29 %

Loan servicing fees, net



28,720



28,360


1 %

Mortgage warehouse fees



4,126



5,751


-28 %

Loss on sale of investments available for sale (1)



(108)



—


-100 %

Syndication and asset management fees



10,370



7,476


39 %

Other income



8,604



9,786


-12 %

Total noninterest income



88,967



80,214


11 %

Noninterest Expense









Salaries and employee benefits



93,187



74,922


24 %

Loan expense



3,063



2,749


11 %

Occupancy and equipment



6,707



6,884


-3 %

Professional fees



11,094



8,547


30 %

Deposit insurance expense



19,685



9,552


106 %

Technology expense



5,781



4,757


22 %

Other expense



21,093



14,611


44 %

Total noninterest expense



160,610



122,022


32 %

Income Before Income Taxes



294,764



248,454


19 %

Provision for income taxes (2)



70,044



46,693


50 %

Net Income


$

224,720


$

201,761


11 %

   Dividends on preferred stock



(24,181)



(26,003)


-7 %

   Impact of preferred stock redemption



(1,823)



—


-100 %

Net Income Available to Common Shareholders


$

198,716


$

175,758


13 %

Basic Earnings Per Share


$

4.46


$

4.07


10 %

Diluted Earnings Per Share


$

4.45


$

4.06


10 %

Weighted-Average Shares Outstanding









Basic



44,549,432



43,218,125



Diluted



44,696,107



43,317,343












(1) Includes $(108) and $0 respectively, related to accumulated other comprehensive earnings reclassifications.



(2) Includes $26 and $0 respectively, related to income tax benefit for reclassification items.






 

Key Operating Results

(Unaudited)

($ in thousands, except share data)

















Three Months Ended


Change





September 30,


June 30,


September 30,


3Q24


3Q24





2024


2024


2023


vs. 2Q24


vs. 3Q23















Noninterest expense



$                  61,318


$                    50,380


$           42,930


22 %


43 %















Net interest income (before provision for credit losses)



132,821


128,119


117,436


4 %


13 %


Noninterest income



16,742


31,351


36,068


-47 %


-54 %


Total income



$                149,563


$                  159,470


$         153,504


-6 %


-3 %















Efficiency ratio



41.00 %


31.59 %


27.97 %


941

bps

1,303

bps



























Average assets



$           18,311,393


$             17,814,191


$    16,031,015


3 %


14 %


Net income



61,273


76,393


81,504


-20 %


-25 %


Return on average assets before annualizing



0.33 %


0.43 %


0.51 %






Annualization factor



4.00


4.00


4.00






Return on average assets



1.34 %


1.72 %


2.03 %


(38)

bps

(69)

bps














Return on average tangible common shareholders' equity (1)



14.43 %


19.55 %


26.69 %


(512)

bps

(1,226)

bps














Tangible book value per common share (1)



$                    32.38


$                      31.27


$             25.82


4 %


25 %















Tangible common shareholders' equity/tangible assets (1)



7.95 %


7.86 %


6.78 %


9

bps

117

bps














Consolidated ratios













Total capital/risk-weighted assets(2)



12.4

%

12.0

%

11.5

%




Tier I capital/risk-weighted assets(2)



11.7

%

11.4

%

10.9

%




Common Equity Tier I capital/risk-weighted assets(2)



9.0

%

8.7

%

7.6

%




Tier I capital/average assets(2)



10.5

%

10.6

%

10.1

%

















(1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below:























(2) As defined by regulatory agencies; September 30, 2024 shown as estimates and prior periods shown as reported.  





















Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company's financial condition, results of operations and cash flows computed in accordance with GAAP; however, they do have a number of limitations.  As such, the reader should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable  to non-GAAP financial measures that other companies use.  A reconciliation of GAAP to non-GAAP financial measures is below.  Net Income Available to Common Shareholders excludes preferred stock.  Tangible common shareholders' equity is calculated by excluding the balance of goodwill and other intangible assets and preferred stock from the calculation of total equity.  Tangible Assets is calculated by excluding the balance of goodwill and intangible assets.  Tangible book value per share is calculated by dividing tangible common shareholders' equity by the number of shares outstanding.     































Three Months Ended


Change





September 30,


June 30,


September 30,


3Q24


3Q24





2024


2024


2023


vs. 2Q24


vs. 3Q23















Net income



$                  61,273


$                    76,393


$           81,504


-20 %


-25 %


Less: preferred stock dividends  



(7,757)


(7,757)


(8,668)


—


-11 %


Less: preferred stock redemption



-


(1,823)


-


-100 %


—


Net income available to common shareholders



$                  53,516


$                    66,813


$           72,836


-20 %


-27 %















Average shareholders' equity



$             1,941,026


$               1,824,730


$      1,607,779


6 %


21 %


Less: average goodwill & intangibles



(8,092)


(8,140)


(16,742)


-1 %


-52 %


Less: average preferred stock



(449,387)


(449,387)


(499,608)


—


-10 %


Average tangible common shareholders' equity



$             1,483,547


$               1,367,203


$      1,091,429


9 %


36 %















Annualization factor



4.00


4.00


4.00






Return on average tangible common shareholders' equity



14.43 %


19.55 %


26.69 %


(512)

bps

(1,226)

bps














Total equity



$             1,939,107


$               1,888,147


$      1,632,715


3 %


19 %


Less: goodwill and intangibles



(8,079)


(8,108)


(16,676)


—


-52 %


Less: preferred stock



(449,387)


(449,387)


(499,608)


—


-10 %


Tangible common shareholders' equity



$             1,481,641


$               1,430,652


$      1,116,431


4 %


33 %















Assets



$           18,652,976


$             18,212,422


$    16,495,236


2 %


13 %


Less: goodwill and intangibles



(8,079)


(8,108)


(16,676)


—


-52 %


Tangible assets



$           18,644,897


$             18,204,314


$    16,478,560


2 %


13 %















Ending common shares



45,764,023


45,757,567


43,240,212



















Tangible book value per common share



$                    32.38


$                      31.27


$             25.82


4 %


25 %


Tangible common shareholders' equity/tangible assets



7.95 %


7.86 %


6.78 %


9

bps

117

bps

 

Key Operating Results

(Unaudited)

($ in thousands, except share data)













Nine Months Ended







September 30,


September 30,







2024


2023


Change











Noninterest expense



$         160,610


$        122,022


32 %











Net interest income (before provision for credit losses)



387,996


323,746


20 %


Noninterest income



88,967


80,214


11 %


Total income



$         476,963


$        403,960


18 %











Efficiency ratio



33.67 %


30.21 %


346

bps



















Average assets



$    17,642,004


$   14,541,523


21 %


Net income



224,720


201,761


11 %


Return on average assets before annualizing



1.27 %


1.39 %




Annualization factor



1.33


1.33




Return on average assets



1.69 %


1.85 %


(16)

bps










Return on average tangible common shareholders' equity (1)



19.39 %


22.61 %


(322)

bps










Tangible book value per common share (1)



$             32.38


$            25.82


25 %











Tangible common shareholders' equity/tangible assets (1)



7.95 %


6.78 %


117

bps










(1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below:
















Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company's financial condition, results of operations and cash flows computed in accordance with GAAP; however, they do have a number of limitations.  As such, the reader should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable  to non-GAAP financial measures that other companies use.  A reconciliation of GAAP to non-GAAP financial measures is below.  Net Income Available to Common Shareholders excludes preferred stock.  Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred stock from the calculation of total assets.  Tangible Assets is calculated by excluding the balance of goodwill and intangible assets.  Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding.     














Nine Months Ended







September 30,


September 30,







2024


2023


Change











Net income



$         224,720


$        201,761


11 %


Less: preferred stock dividends  



(24,181)


(26,003)


-7 %


Less: preferred stock redemption



(1,823)


-


-100 %


Net income available to common shareholders



$         198,716


$        175,758


13 %











Average shareholders' equity



$      1,838,182


$     1,550,196


19 %


Less: average goodwill & intangibles



(8,906)


(16,859)


-47 %


Less: average preferred stock



(466,066)


(499,608)


-7 %


Average tangible common shareholders' equity



$      1,363,210


$     1,033,729


32 %











Annualization factor



1.33


1.33




Return on average tangible common shareholders' equity



19.39 %


22.61 %


(322)

bps










Total equity



$      1,939,107


$     1,632,715


19 %


Less: goodwill and intangibles



(8,079)


(16,676)


-52 %


Less: preferred stock



(449,387)


(499,608)


-10 %


Tangible common shareholders' equity



$      1,481,641


$     1,116,431


33 %











Assets



$    18,652,976


$   16,495,236


13 %


Less: goodwill and intangibles



(8,079)


(16,676)


-52 %


Tangible assets



$    18,644,897


$   16,478,560


13 %











Ending common shares



45,764,023


43,240,212













Tangible book value per common share



$             32.38


$            25.82


25 %


Tangible common shareholders' equity/tangible assets



7.95 %


6.78 %


117

bps

 

Merchants Bancorp


Average Balance Analysis


($ in thousands)


(Unaudited)
















Three Months Ended


Three Months Ended


Three Months Ended



September 30, 2024


June 30, 2024


September 30, 2023



Average


Yield/


Average


Yield/


Average


Yield/



Balance

Interest

Rate 


Balance

Interest

Rate 


Balance

Interest

Rate 


Assets:


























Interest-earning deposits, and other interest or dividends

$       484,712

$     7,671

6.30 %


$      438,445

$     6,225

5.71 %


$        259,630

$     3,923

5.99 %


Securities available for sale

1,011,146

14,855

5.84 %


1,039,388

14,784

5.72 %


656,561

6,182

3.74 %


Securities held to maturity

1,288,466

22,081

6.82 %


1,160,170

19,799

6.86 %


1,040,070

17,427

6.65 %


Mortgage loans in process of securitization

308,362

4,062

5.24 %


234,706

3,044

5.22 %


208,767

2,583

4.91 %


Loans and loans held for sale

14,603,750

290,259

7.91 %


14,347,165

284,421

7.97 %


13,399,854

266,561

7.89 %


     Total interest-earning assets

17,696,436

338,928

7.62 %


17,219,874

328,273

7.67 %


15,564,882

296,676

7.56 %


Allowance for credit losses on loans

(81,178)




(76,456)




(63,449)




Noninterest-earning assets

696,135




670,773




529,582

















Total assets

$  18,311,393




$  17,814,191




$    16,031,015






























Liabilities & Shareholders' Equity:


























Interest-bearing checking

$    5,297,908

62,603

4.70 %


$    4,935,123

58,128

4.74 %


$     4,882,727

58,642

4.76 %


Savings deposits

145,305

17

0.05 %

#

145,262

19

0.05 %


241,861

340

0.56 %


Money market 

2,816,906

33,858

4.78 %

#

2,788,335

33,207

4.79 %


2,798,325

33,235

4.71 %


Certificates of deposit

5,032,159

69,197

5.47 %

#

6,535,651

88,297

5.43 %


5,255,573

70,689

5.34 %


    Total interest-bearing deposits

13,292,278

165,675

4.96 %


14,404,371

179,651

5.02 %


13,178,486

162,906

4.90 %















Borrowings

2,518,405

40,432

6.39 %


1,031,180

20,503

8.00 %


711,948

16,334

9.10 %


    Total interest-bearing liabilities

15,810,683

206,107

5.19 %


15,435,551

200,154

5.22 %


13,890,434

179,240

5.12 %















Noninterest-bearing deposits

327,930




331,246




333,155




Noninterest-bearing liabilities

231,754




222,664




199,647

















    Total liabilities

16,370,367




15,989,461




14,423,236

















    Shareholders' equity

1,941,026




1,824,730




1,607,779

















Total liabilities and shareholders' equity

$  18,311,393




$  17,814,191




$    16,031,015

















Net interest income


$  132,821




$ 128,119




$ 117,436
















Net interest spread



2.43 %




2.45 %




2.44 %















Net interest-earning assets

$    1,885,753




$    1,784,323




$     1,674,448

















Net interest margin



2.99 %




2.99 %




2.99 %















Average interest-earning assets to average interest-bearing liabilities



111.93 %




111.56 %




112.05 %

 

Supplemental Results

(Unaudited)

($ in thousands)






















Net Income



Net Income






Three Months Ended



Nine Months Ended






September 30,



June 30, 



September 30,



September 30,






2024



2024



2023



2024


2023


Segment

















Multi-family Mortgage Banking




$              8,068



$            9,037



$             14,685



$         33,714


$         27,893


Mortgage Warehousing




15,940



22,270



19,926



58,400


47,163


Banking




44,983



52,378



52,445



153,786


144,402


Other




(7,718)



(7,292)



(5,552)



(21,180)


(17,697)


Total




$            61,273



$          76,393



$             81,504



$       224,720


$       201,761








































Total Assets











September 30, 2024


June 30, 2024


December 31, 2023










Amount

%


Amount

%


Amount

%






Segment

















Multi-family Mortgage Banking




$          453,281

2 %


$        428,299

2 %


$           411,097

2 %






Mortgage Warehousing




5,842,489

31 %


5,626,055

31 %


4,522,175

27 %






Banking




12,035,581

65 %


11,885,484

65 %


11,760,943

69 %






Other




321,625

2 %


272,584

2 %


258,301

2 %






Total




$     18,652,976

100 %


$   18,212,422

100 %


$      16,952,516

100 %












































Gain on Sale of Loans



Gain on Sale of Loans






Three Months Ended



Nine Months Ended






September 30,



June 30, 



September 30,



September 30,






2024



2024



2023



2024


2023


Loan Type

















Multi-family




$            15,302



$            9,083



$               8,616



$         32,808


$         23,897


Single-family




690



524



951



1,494


1,430


Small Business Association (SBA)




739



1,561



1,191



2,953


3,514


Total




$            16,731



$          11,168



$             10,758



$         37,255


$         28,841


 

Supplemental Results

(Unaudited)

($ in thousands)






















Loans Receivable and Loans Held for Sale











September 30,



June 30,



December 31, 











2024



2024



2023
























Mortgage warehouse repurchase agreements




$       1,213,429



$     1,369,965



$           752,468







Residential real estate (1)




1,317,234



1,345,656



1,324,305







Multi-family financing




4,456,129



4,160,420



4,006,160







Healthcare financing




1,733,674



2,495,910



2,356,689







Commercial and commercial real estate (2)(3)




1,548,689



1,566,809



1,643,081







Agricultural production and real estate




71,391



70,244



103,150







Consumer and margin loans




5,893



5,213



13,700











10,346,439



11,014,217



10,199,553







    Less: Allowance for credit losses on loans




84,549



81,028



71,752







Loans receivable




$     10,261,890



$   10,933,189



$      10,127,801
























Loans held for sale




3,808,234



3,483,076



3,144,756







Total loans, net of allowance




$     14,070,124



$   14,416,265



$      13,272,557
























(1)     Includes $1.2 billion, $1.2 billion and $1.2 billion of All-In-One © first-lien home equity lines of credit as of September 30, 2024, June 30, 2024 and December 31, 2023, respectively.







(2)    Includes $0.9 billion, $1.0 billion and $1.1 billion of revolving  lines of credit collateralized primarily by mortgage servicing rights as of September 30, 2024, June 30, 2024 and December 31, 2023, respectively.







(3)     Includes only $19.3 million, $6.8 million and $8.4 million of non-owner occupied commercial real estate as of September 30, 2024, June 30, 2024 and December 31, 2023, respectively.  




























Loan Credit Risk Profile










September 30, 2024


June 30, 2024


December 31, 2023










Amount

%


Amount

%


Amount

%























Pass 




$       9,707,205

93.8 %


$   10,523,378

95.6 %


$        9,879,659

96.9 %






Special mention




351,407

3.4 %


244,000

2.2 %


191,267

1.9 %






Substandard




287,827

2.8 %


246,839

2.2 %


128,577

1.2 %






Doubtful




—

—


—

—


50

—






Loans receivable




$     10,346,439

100.0 %


$   11,014,217

100.0 %


$      10,199,553

100.0 %






Charge-offs (year-to-date)




$              6,437



$            4,377



$               9,791







Recoveries (year-to-date)




$                   23



$                 16



$                    41




























Nonperforming Loans











September 30,



June 30, 



December 31, 











2024



2024



2023
























Nonaccrual loans




$          210,811



$        143,319



$             73,847







90 days past due and still accruing




91



133



8,168







Total nonperforming loans




$          210,902



$        143,452



$             82,015







Other real estate owned




$                 896



—



—







Total nonperforming assets




$          211,798



$        143,452



$             82,015







Nonperforming loans to total loans




2.04 %



1.30 %



0.80 %







Nonperforming assets to total assets




1.14 %



0.79 %



0.48 %







 

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SOURCE Merchants Bancorp